A university endowment is a fund created out of the money received by donors. Their dimensions depends upon how many donations the institution is receiving and their ability of increasing this wealth. Instead of spending the entire principal for current use, university endowments use generally 4% to 5% every year, while the remaining part is generally invested in various asset classes.

Endowments follow two key objectives while making investments:

they want to generate
a high enough real return to take care of their yearly withdrawals
without dipping into the principal.

the college wants to preserve the real value of its principal
against inflation.

By following this approach, the endowments try to survive longer than its
own creators.

The biggest endowments, such as Yale and Harvard, have generated returns of
15.23% (Harvard) and 16.62% (Yale) between 1985 and 2008, when the S&P
500 grew on average only 12%. The secret of this outperformance lies in the
diversification of the portfolios, as shown in the picture below that focuses
on Yale holdings.